U.S. equity markets broadly moved sideways amid last week’s lower trading activity due to the holidays but remain near their all-time highs heading into year-end, with the S&P 500 up almost 15% on the year (not including dividends) as of Friday’s close. Recent economic data has suggested that the pace of U.S. economic momentum continues to decelerate, but investor sentiment has gotten a boost following official approval of the $900B coronavirus relief bill by President Trump over the weekend as well as a post-Brexit trade agreement between the United Kingdom and the European Union. For the week, the Nasdaq Composite edged higher by 0.3%, while the S&P 500 and Dow Jones slid slightly lower by -0.5% and -0.3%, respectively.
The resolution on additional fiscal stimulus in the U.S. has eased some concerns as economic activity has shown signs of slowing. Weekly jobless claims data have ticked up in December amid tightening social distancing restrictions and personal income has also shown some pressure. Last week’s Personal Income and Outlays report from the U.S. Bureau of Economic Analysis showed a -1.1% drop in personal income in November following a -0.6% drop in October, and personal consumption expenditures have started to follow suit, dipping by -0.4% in November. The recently passed relief bill includes direct stimulus checks of $600 to qualifying individuals as well as enhanced unemployment benefits of an additional $300 per week and small business aid. However, there may be more stimulus yet to come as President Trump has pressed on Congress to work toward a separate bill to boost direct payments up to $2,000.
Overseas, the resolution on a post-Brexit trade deal has also helped market participants breathe a little easier heading into year-end as it provides some clarity and removes some worst-case scenarios from the separation. In particular, tariffs and quotas between the U.K. and the E.U., which would have been very disruptive to trade relations, have been taken off the table. However, the prospects from the deal are far from rosy as the loss of preferential trade terms and other nontariff trade barriers will pose obstacles in the near-term. British economic output is still expected to take a hit as the E.U. accounted for approximately 43% of its exports and 52% of its imports in 2019.
The week ahead is expected to be relatively quiet in terms of economic and political news and other market developments. Instead, many market participants are looking ahead to the new year with increasing focus on next week’s Georgia Senate races, which could determine control of the Senate, thereby having notable implications for near-term stimulus as well as legislation and regulation policies in the years to come.
From everyone at First Merchants Private Wealth Advisors, we wish a happy and healthy New Year to you and yours.
